---

---

FORM 10-QSB

---

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October 31, 2002

Commission
File No. 1-8125

TOROTEL, INC.(Exact name of small business issuer as specified in its charter)

|MISSOURI                                                       |  | 44-0610086                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

13402 SOUTH 71 HIGHWAY, GRANDVIEW, MISSOURI 64030(Address of principal executive offices)

(816) 761-6314(Issuer's telephone number)

NONE(Former name, former address and former fiscal year, if changed since last report)

Check
whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months and (2) has been subject to
such filing requirements for the past 90 days. Yes ý No o

As
of December 11, 2002, 5,111,590 shares of Common Stock, $.01 Par Value, were outstanding.

---

---

---

TOROTEL, INC. AND SUBSIDIARIES

INDEX

|PART I.    FINANCIAL INFORMATION |                                                                      |   
|-------------------------------- | -------------------------------------------------------------------- | --
|                                 | Item 1.    Financial Statements                                      |   
|                                 |                                                                      |   
|                                 |                                                                      |   
|                                 |                                                                      |   
|                                 |                                                                      |   
|                                 |                                                                      |   
|                                 | Item 2.    Management's Discussion and Analysis or Plan of Operation |   
|                                 | Item 3.    Controls and Procedures                                   |   
|PART II.    OTHER INFORMATION    |                                                                      |   
|                                 | Item 1.    Legal Proceedings                                         |   
|                                 | Item 4.    Submission of Matters to a Vote of Security Holders       |   
|                                 | Item 6.    Exhibits and Reports on Form 8-K                          |   
|SIGNATURES                       |                                                                      | 16

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PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

CONSOLIDATED BALANCE SHEET  (Unaudited)

|                                        |                                           | As of October 31,
2002 |          
|--------------------------------------- | ----------------------------------------- | ---------------------- | ---------
|ASSETS                                  |                                           |                        |          
|Current assets                          |                                           |                        |          
|                                        | Cash                                      |                        | $        
|                                        | Accounts receivable, net                  |                        |          
|                                        | Current maturity of note receivable       |                        |          
|                                        | Inventories                               |                        |          
|                                        | Prepaid expenses and other current assets |                        |          
|                                        |                                           |                        |          
|                                        |                                           |                        | 1,587,000
|Property, plant and equipment, net      |                                           |                        | 281,000  
|Other assets                            |                                           |                        | 7,000    
|Intangible assets, net                  |                                           |                        | 2,216,000
|Equity investment                       |                                           |                        | 1,036,000
|                                        |                                           |                        |          
|                                        |                                           | $                      | 5,127,000
|                                        |                                           |                        |          
|LIABILITIES AND STOCKHOLDERS' EQUITY    |                                           |                        |          
|Current liabilities                     |                                           |                        |          
|                                        | Current maturities of long-term debt      |                        | $        
|                                        | Trade accounts payable                    |                        |          
|                                        | Accrued liabilities                       |                        |          
|                                        |                                           |                        |          
|                                        |                                           |                        | 1,094,000
|Long-term debt, less current maturities |                                           |                        | 358,000  
|Note payable to stockholders            |                                           |                        | 750,000  
|Stockholders' equity                    |                                           |                        |          
|                                        | Common stock, at par value                |                        |          
|                                        | Capital in excess of par value            |                        |          
|                                        | Accumulated deficit                       |                        |          
|                                        |                                           |                        |          
|                                        |                                           |                        | 3,130,000
|                                        | Less treasury stock, at cost              |                        |          
|                                        |                                           |                        |          
|                                        |                                           |                        | 2,925,000
|                                        |                                           |                        |          
|                                        |                                           | $                      | 5,127,000
|                                        |                                           |                        |          

The
accompanying notes are an integral part of this statement.

1

---



CONSOLIDATED STATEMENTS OF OPERATIONS  (Unaudited)

|                               |                                                                                                   | Six Months Ended October 31, |          
|------------------------------ | ------------------------------------------------------------------------------------------------- | ---------------------------- | ---------
|
|Net sales                      |                                                                                                   | $                            | 2,428,000
|Cost of goods sold             |                                                                                                   |                              | 1,382,000
|                               |                                                                                                   |                              |          
|                               | Gross profit                                                                                      |                              |          
|Operating expenses             |                                                                                                   |                              |          
|                               | Engineering                                                                                       |                              |          
|                               | Selling, general and administrative                                                               |                              |          
|                               | Amortization of intangible assets                                                                 |                              |          
|                               |                                                                                                   |                              |          
|                               |                                                                                                   |                              | 750,000  
|                               |                                                                                                   |                              |          
|                               | Earnings from operations                                                                          |                              |          
|Other expense (income)         |                                                                                                   |                              |          
|                               | Interest expense                                                                                  |                              |          
|                               | Interest income                                                                                   |                              |          
|                               | Other, net                                                                                        |                              |          
|                               |                                                                                                   |                              |          
|                               |                                                                                                   |                              | 35,000   
|                               |                                                                                                   |                              |          
|                               | Earnings before provision for income taxes, equity in earnings of investee and extraordinary item |                              |          
|Provision for income taxes     |                                                                                                   |                              |         
|                               |                                                                                                   |                              |          
|                               | Earnings before equity in earnings of investee and extraordinary item                             |                              |          
|Equity in earnings of investee |                                                                                                   |                              | 1,000    
|                               |                                                                                                   |                              |          
|                               | Earnings before extraordinary item                                                                |                              |          
|Extraordinary item             |                                                                                                   |                              |          
|                               | Gain on settlements of debt                                                                       |                              |          
|                               |                                                                                                   |                              |          
|Net earnings                   |                                                                                                   | $                            | 262,000  
|                               |                                                                                                   |                              |          
|Basic earnings per share       |                                                                                                   |                              |          
|                               | Earnings before extraordinary item                                                                |                              | $        
|                               | Extraordinary item                                                                                |                              |          
|                               |                                                                                                   |                              |          
|                               |                                                                                                   | $                            | .05      
|                               |                                                                                                   |                              |          
|Diluted earnings per share     |                                                                                                   |                              |          
|                               | Earnings before extraordinary item                                                                |                              | $        
|                               | Extraordinary item                                                                                |                              |          
|                               |                                                                                                   |                              |          
|                               |                                                                                                   | $                            | .05      
|                               |                                                                                                   |                              |          

The
accompanying notes are an integral part of these statements.

2

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CONSOLIDATED STATEMENTS OF OPERATIONS  (Unaudited)

|                                               |                                                                                                   | Three Months Ended October 31, |          
|---------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------------ | ---------
|
|Net sales                                      |                                                                                                   | $                              | 1,288,000
|Cost of goods sold                             |                                                                                                   |                                | 759,000  
|                                               |                                                                                                   |                                |          
|                                               | Gross profit                                                                                      |                                |          
|Operating expenses                             |                                                                                                   |                                |          
|                                               | Engineering                                                                                       |                                |          
|                                               | Selling, general and administrative                                                               |                                |          
|                                               | Amortization of intangible assets                                                                 |                                |          
|                                               |                                                                                                   |                                |          
|                                               |                                                                                                   |                                | 381,000  
|                                               |                                                                                                   |                                |          
|                                               | Earnings from operations                                                                          |                                |          
|Other expense (income)                         |                                                                                                   |                                |          
|                                               | Interest expense                                                                                  |                                |          
|                                               | Interest income                                                                                   |                                |          
|                                               | Other, net                                                                                        |                                |          
|                                               |                                                                                                   |                                |          
|                                               |                                                                                                   |                                | 18,000   
|                                               |                                                                                                   |                                |          
|                                               | Earnings before provision for income taxes, equity in earnings of investee and extraordinary item |                                |          
|Provision for income taxes                     |                                                                                                   |                                |         
|                                               |                                                                                                   |                                |          
|                                               | Earnings before equity in earnings of investee and extraordinary item                             |                                |          
|Equity in earnings (loss) of investee          |                                                                                                   |                                | (9,000   
|                                               |                                                                                                   |                                |          
|                                               | Earnings before extraordinary item                                                                |                                |          
|Extraordinary item Gain on settlements of debt |                                                                                                   |                                |         
|                                               |                                                                                                   |                                |          
|Net earnings                                   |                                                                                                   | $                              | 121,000  
|                                               |                                                                                                   |                                |          
|Basic earnings per share                       |                                                                                                   |                                |          
|                                               | Earnings before extraordinary item                                                                |                                | $        
|                                               | Extraordinary item                                                                                |                                |          
|                                               |                                                                                                   |                                |          
|                                               |                                                                                                   | $                              | .02      
|                                               |                                                                                                   |                                |          
|Diluted earnings per share                     |                                                                                                   |                                |          
|                                               | Earnings before extraordinary item                                                                |                                | $        
|                                               | Extraordinary item                                                                                |                                |          
|                                               |                                                                                                   |                                |          
|                                               |                                                                                                   | $                              | .02      
|                                               |                                                                                                   |                                |          

The
accompanying notes are an integral part of these statements.

3

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CONSOLIDATED STATEMENTS OF CASH FLOWS  (Unaudited)

|                                                    |                                                                                    | Six Months Ended October 31,                                                                        |                                  
|--------------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------------------------
|
|Cash flows from operating activities                |                                                                                    |                                                                                                     |                                  
|                                                    | Net earnings                                                                       |                                                                                                     | $                                
|                                                    | Adjustments to reconcile net earnings to net cash provided by operating activities |                                                                                                     |                                  
|                                                    |                                                                                    | Gain on equity in earnings of investee                                                              |                                  
|                                                    |                                                                                    | Gain on settlements of debt                                                                         |                                  
|                                                    |                                                                                    | Depreciation and amortization                                                                       |                                  
|                                                    |                                                                                    | Increase (decrease) in cash flows from operations resulting from changes in
    Accounts receivable |                                  
|                                                    |                                                                                    |                                                                                                     | Inventories                      
|                                                    |                                                                                    |                                                                                                     | Prepaid expenses and other assets
|                                                    |                                                                                    |                                                                                                     | Trade accounts payable           
|                                                    |                                                                                    |                                                                                                     | Accrued liabilities              
|                                                    |                                                                                    |                                                                                                     | Income taxes payable             
|                                                    |                                                                                    |                                                                                                     |                                  
|Net cash provided by operating activities           |                                                                                    |                                                                                                     | 356,000                          
|                                                    |                                                                                    |                                                                                                     |                                  
|Cash flows from investing activities                |                                                                                    |                                                                                                     |                                  
|                                                    | Capital expenditures                                                               |                                                                                                     |                                  
|                                                    | Proceeds from note receivable                                                      |                                                                                                     |                                  
|                                                    | Electronika acquisition costs                                                      |                                                                                                     |                                  
|                                                    | Apex acquisition costs                                                             |                                                                                                     |                                  
|                                                    |                                                                                    |                                                                                                     |                                  
|Net cash provided by (used in) investing activities |                                                                                    |                                                                                                     | (15,000                          
|                                                    |                                                                                    |                                                                                                     |                                  
|Cash flows from financing activities                |                                                                                    |                                                                                                     |                                  
|                                                    | Principal payments on long-term debt                                               |                                                                                                     |                                  
|                                                    | Payments on capital lease obligations                                              |                                                                                                     |                                  
|                                                    | Proceeds from long-term debt                                                       |                                                                                                     |                                  
|                                                    | Note and interest payable to former officer                                        |                                                                                                     |                                  
|                                                    |                                                                                    |                                                                                                     |                                  
|Net cash used in financing activities               |                                                                                    |                                                                                                     | (75,000                          
|                                                    |                                                                                    |                                                                                                     |                                  
|Net increase in cash                                |                                                                                    |                                                                                                     | 266,000                          
|Cash, beginning of period                           |                                                                                    |                                                                                                     | 338,000                          
|                                                    |                                                                                    |                                                                                                     |                                  
|Cash, end of period                                 |                                                                                    | $                                                                                                   | 604,000                          
|                                                    |                                                                                    |                                                                                                     |                                  
|Supplemental disclosures of cash flow Information   |                                                                                    |                                                                                                     |                                  
|                                                    | Cash paid during the period for                                                    |                                                                                                     |                                  
|                                                    |                                                                                    | Interest                                                                                            |                                  
|                                                    |                                                                                    | Income taxes                                                                                        |                                  

The
accompanying notes are an integral part of these statements.

4

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Unaudited)

Note 1Basis of Presentation

Torotel, Inc. (Torotel) specializes in the custom design and manufacture of a wide variety of precision magnetic components, consisting of transformers,
inductors, reactors, chokes and toroidal coils, for use in commercial, industrial and military electronics. Torotel also designs and distributes ballast transformers for the airline industry.
Approximately 98% of Torotel's sales are derived from domestic customers. The accompanying unaudited consolidated financial statements reflect the normal recurring adjustments which are, in the
opinion of management, necessary to present fairly Torotel's financial position at October 31, 2002, and the results of operations for the six months ended October 31, 2002.

The
financial statements contained herein should be read in conjunction with Torotel's financial statements and related notes filed on Form 10-KSB for the year ended
April 30, 2002.

Note 2Inventories

The components of inventories are summarized as follows:

Work in process

$
143,000Finished goods


12,000$
155,000


Note 3Income Taxes

Torotel has net operating loss carryforwards available as benefits to reduce future income taxes, subject to applicable limitations. These operating loss
carryforwards expire in various amounts in the years 2003 through 2014.

The
difference between the financial statement and tax bases of assets and liabilities is determined annually. Deferred income taxes and liabilities are computed for those differences
that have future tax consequences using the currently enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Valuation allowances are established, if
necessary, to reduce the deferred tax asset to the amount that will, more likely than not, be realized. Income tax expense is the current tax payable or refundable for the period plus or minus the net
change in the deferred tax assets or liabilities.

The
following table summarizes the components of the net deferred tax asset:

Net operating loss carryforwards

$
2,111,000Inventory valuation


190,000Tax credit carryforwards


20,000Other


48,0002,369,000Less valuation allowance


2,369,000$



5

---

Note 4Earnings Per Share

Statement of Financial Accounting Standards (SFAS) No. 128,Earnings per Share, requires dual presentation
of basic and diluted EPS on the face of the statement of earnings regardless of whether basic and diluted EPS are the same; and requires a reconciliation of the numerator and denominator used in
computing basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing earnings available to holders of common stock by the weighted average number of common shares outstanding for
the period. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB Opinion 15. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Pursuant to SFAS No. 128, the basic and
diluted earnings per common share are computed as follows:

Year-to-Date EPS Calculations

2002

2001Net earnings

$
262,000

$
336,000Weighted average common shares outstanding


5,111,590


2,811,590Incremental shares


38,531


Basic earnings per share

$
..05

$
..12Diluted earnings per share

$
.05

$
.12


No
incremental shares are included in the EPS calculations for 2001 because the market price of Torotel's common stock being lower than the exercise price of the stock equivalents under
contract.

Quarterly EPS Calculations

2002

2001Net earnings

$
121,000

$
182,000Weighted average common shares outstanding


5,111,590


2,811,590Incremental shares


36,185


Basic earnings per share

$
..02

$
..07Diluted earnings per share

$
.02

$
.07


No
incremental shares are included in the EPS calculations for 2001 because the market price of Torotel's common stock being lower than the exercise price of the stock equivalents under
contract.

Note 5Financing Agreements

Under the terms of a loan with United Trust Bank (formerly Vista Bank, N.A.), Torotel is required to comply with certain covenants including restrictions on the
payment of cash dividends. Torotel was in violation of a current ratio covenant at April 30, 2002; however, the bank waived compliance with the subject provision as of April 30, 2002.
Torotel cured the default during the first quarter ended July 31, 2002, and continues to be in compliance with the current ratio covenant.

Note 6Employee Stock Options

In accordance with the Incentive Compensation Plan approved by shareholders on September 19, 1994, Torotel has reserved 400,000 common shares for issuance
to key employees pursuant to the exercise of incentive and non-qualified stock options granted prior to June 20, 2004. The options are accounted for under APB Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations. The incentive stock options have a term of five years when issued and vest 50%
per year at the end of each of the first two years. The non-qualified stock options have a term of ten years when issued and vest 25% per year at the end of each of the first four years.
The exercise price of each option equals the market price of Torotel's common stock on the date of grant. Accordingly, no compensation cost will be recognized upon the grant of any options. Had
compensation cost for the

6

---

Plan been determined based on the fair values of the options at their grant dates consistent with the method of SFAS No. 123,Accounting for Stock-Based
Compensation,Torotel's operating results would have been reduced to the pro forma amounts indicated below.

|Year-to-Date                       |  |             |  | 2002 |         | 2001
|---------------------------------- |  | ----------- |  | ---- | ------- | ----
|Earnings before extraordinary item |  | As Reported |  | $    | 262,000 |     
|                                   |  | Pro Forma   |  | $    | 255,000 |     
|Basic earnings per share           |  | As Reported |  | $    | ..05    |     
|                                   |  | Pro Forma   |  | $    | .05     |     
|Diluted earnings per share         |  | As Reported |  | $    | ..05    |     
|                                   |  | Pro Forma   |  | $    | .05     |     

|Quarterly                          |  |             |  | 2002 |         | 2001
|---------------------------------- |  | ----------- |  | ---- | ------- | ----
|Earnings before extraordinary item |  | As Reported |  | $    | 121,000 |     
|                                   |  | Pro Forma   |  | $    | 121,000 |     
|Basic earnings per share           |  | As Reported |  | $    | ..02    |     
|                                   |  | Pro Forma   |  | $    | .02     |     
|Diluted earnings per share         |  | As Reported |  | $    | ..02    |     
|                                   |  | Pro Forma   |  | $    | .02     |     

The
fair value of the incentive stock options granted was estimated on the date of grant using the Black-Scholes options-pricing model. The fair value of the options was determined using
the following weighted average assumptions: no dividend payments over the life of the options; expected volatility of 551.0%; risk-free interest rate of 3.50%; and expected life of five
years.

Stock
option transactions under the 1994 Incentive Compensation Plan for each period are summarized as follows:

|                                     |  | 2002   |  | 2001
|------------------------------------ |  | ------ |  | ----
|
|Outstanding at beginning of period   |  | 40,000 |  | $   
|Granted                              |  |       |  |     
|Exercised                            |  |       |  |     
|Forfeited                            |  |       |  |     
|                                     |  |        |  |     
|Outstanding at end of period         |  | 40,000 |  | $   
|                                     |  |        |  |     
|Options exercisable at end of period |  | 20,000 |  | $   
|Weighted average fair value of       |  |        |  |     
|options granted during the period    |  |       |  |     

The
following information applies to options outstanding at October, 2002:

Number outstanding


40,000Range of exercise prices

$
.37Weighted average exercise price

$
.37Weighted average remaining contractual life


4.00
yrs.


7

---

Note 7Stock Warrants

Pursuant to a settlement that ended a class action alleging racial discrimination in hiring by Torotel Products, Inc., Torotel agreed to issue a warrant
certificate to the Torotel Settlement Fund to purchase 100,000 shares of Torotel, Inc.'s common stock at $.75 per share. The warrant is 100% vested upon issuance and cannot be exercised until
the market price of Torotel's common stock reaches $2.00 per share. The warrant expires on May 4, 2003.

The
$33,000 fair value of the warrant was estimated on the date of grant using the Black-Scholes options-pricing model using the following weighted average assumptions: no dividend
payments over the life of the warrant; expected volatility of 75.9%; risk-free interest rate of 5.8%; and expected life of two years.

Stock
warrant transactions for each period are summarized as follows:

|                                                                  |  | 2002    |  | 2001
|----------------------------------------------------------------- |  | ------- |  | ----
|
|Outstanding at beginning of period                                |  | 100,000 |  | $   
|Granted                                                           |  |        |  |     
|Exercised                                                         |  |        |  |     
|Forfeited                                                         |  |        |  |     
|                                                                  |  |         |  |     
|Outstanding at end of period                                      |  | 100,000 |  | $   
|                                                                  |  |         |  |     
|Warrants exercisable at end of period                             |  |        |  |     
|Weighted average fair value of warrants granted during the period |  |        |  |     

The following information applies to warrants outstanding at October 31, 2002:

Number outstanding


100,000Range of exercise prices

$
.75Weighted average exercise price

$
.75Weighted average remaining contractual life


.50 yrs.


Note 8Extraordinary Item

For the six months ended October 31, 2001, the extraordinary item as presented in the accompanying consolidated statements of operations includes a gain of
$438,000 resulting from the settlement of old liabilities at amounts lower than originally recorded.

For
the three months ended October 31, 2001, the extraordinary item as presented in the accompanying consolidated statements of operations includes a gain of $411,000 resulting
from the settlement of an old liability at an amount lower than originally recorded (see Note 10 of Notes to Consolidated Financial Statements).

Note 9Amortization of Intangibles

The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset based on Torotel's reassessment of
previously recognized intangible assets and

8

---

their remaining amortization lives in accordance with the adoption of Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible
Assets:

|              |  |    |  | 2002 |           | 2001
|------------- |  | -- |  | ---- | --------- | ----
|
|Order backlog |  | 1  |  | $    | 205,000   |     
|Aircraft      |  | 17 |  |      | 2,177,000 |     
|              |  |    |  |      |           |     
|              |  |    |  | $    | 2,382,000 |     
|              |  |    |  |      |           |     

The
total intangible amortization expense for the six months ended October 31, 2002 was $166,000. The estimated aggregate amortization expense for each of the next five years is
as follows:

Year Ending
April 30,

Amount2003

$
332,0002004


127,0002005


127,0002006


127,0002007


127,000$
840,000


9

---



Note 10Equity Investment

On March 29, 2002, Torotel acquired a 17% equity interest in Apex Innovations, Inc. (Apex). The investment is accounted for using the equity method
of accounting. The accompanying consolidated statements of operations include a $9,000 loss and a $1,000 profit for the three and six months ended October 31, 2002, respectively, resulting from
Apex's operating results for the three and six months ended August 31, 2002. Condensed financial statements for Torotel's investment in Apex are as follows:

Condensed Balance Sheet

August 31,
2002Current assets

$
1,433,000Other assets


5,053,000$
6,486,000Current liabilities

$
512,000Other liabilities


2,551,000Stockholders' equity


3,423,000$
6,486,000


Condensed Statements of Operations

6-Mos Ended
August 31,
2002

3-Mos. Ended
August 31,
2002

2-Mos. Ended
February 28,
2002Net sales

$
2,749,000

$
1,366,000

$
534,000Gross profit

$
1,192,000

$
593,000

$
315,000Net earnings (loss)

$
3,000

$
(55,000
)
$
8,000


Note 11Discontinued Subsidiary

The operations of East Coast Holdings, Inc. (formerly named OPT Industries, Inc.), a wholly-owned subsidiary of Torotel, were discontinued in
April 1999, and the assets sold to Shared Information Group Management Associates, L.L.C (SIGMA). The remaining assets and liabilities related to this subsidiary as of October 31, 2002,
are included in the accompanying consolidated balance sheet under the following captions and in the amounts shown:

Current maturity of note receivable

$
82,000Current maturities of long-term debt

$
51,000Trade accounts payable

$
391,000Accrued liabilities

$
50,000


Note 12Acquisition

On April 2, 2002, Torotel acquired 100% of the common stock of Electronika, a custom design, marketing and licensing company selling ballast transformers
to the airline industry for use as spare and replacement parts in DC-8, DC-9, DC-10, MD-80, and MD-88 aircraft. The total purchase price of
$2,382,000 consisted of 2,300,000 unregistered shares of Torotel's common stock and $82,000 in acquisition costs. For accounting purposes, April 1 is considered the effective date of the
acquisition.

10

---

The
accompanying consolidated statements of operations include the operating results of Electronika for the three and six months ended October 31, 2002. The following unaudited
pro forma summaries present the consolidated results of operations as if the acquisition had occurred at the beginning of the periods presented. The pro forma results include the effects of amortizing
intangible assets and exclude compensation in excess of amounts payable after the acquisition.

|                                                     |  | Pro Forma Information
Six Months Ended
October 31,
|---------------------------------------------------- |  | --------------------------------------------------
|
|Net sales                                            |  | $                                                 
|Earnings before extraordinary item                   |  | $                                                 
|Net earnings                                         |  | $                                                 
|Basic earnings per share before extraordinary item   |  | $                                                 
|Basic earnings per share                             |  | $                                                 
|Diluted earnings per share before extraordinary item |  | $                                                 
|Diluted earnings per share                           |  | $                                                 

|                                                     |  | Pro Forma Information
Three Months Ended
October 31,
|---------------------------------------------------- |  | ----------------------------------------------------
|
|Net sales                                            |  | $                                                   
|Earnings before extraordinary item                   |  | $                                                   
|Net earnings                                         |  | $                                                   
|Basic earnings per share before extraordinary item   |  | $                                                   
|Basic earnings per share                             |  | $                                                   
|Diluted earnings per share before extraordinary item |  | $                                                   
|Diluted earnings per share                           |  | $                                                   

The
pro forma information does not purport to be indicative of the results of operations that would have occurred had the acquisition taken place at the beginning of the periods
presented or of future results of operations.

11

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Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following management comments regarding Torotel's results of operations and outlook should be read in conjunction with the Consolidated Financial Statements
included pursuant to Item 1 of this Quarterly Report.

The
discussion and analysis of the results of operations include the operations of Torotel, Inc. and its subsidiaries, Torotel Products, Inc. and Electronika, Inc.
(see Note 12 of Notes to Consolidated Financial Statements).



Net
sales increased nearly 24%. The net sales of Torotel Products increased 2% from $1,962,000 to $2,004,000. This increase was attributable to higher sales of the potted coil assembly
for the Hellfire II missile system. The rate of new order bookings decreased 18% compared with last year. This is attributable to very soft conditions over the last 45-60 days in
Torotel's aerospace markets, specifically the components used in retrofitting and upgrading instrumentation and communication systems in existing aircraft. Feedback from major customers indicates this
downward trend is expected to continue as the airline industry continues to reduce its active number of aircraft. This trend will also affect Electronika. New contract awards associated with ongoing
military programs have helped to offset the low order rate, and additional awards are expected. The net sales of Electronika were $424,000; however, Electronika has received only $226,000 in new order
bookings for the first six months of the fiscal year. As a result of the lower order rate at both Torotel Products and Electronika, management is targeting approximately
$4,400,000$4,600,000 as a revised consolidated sales goal for fiscal 2003, down from $5,400,000 projected at the beginning of the year.

Gross
profit as a percentage of net sales decreased slightly. The gross profit percentage of Torotel Products decreased 4% primarily because of higher labor costs associated with the
development of a new subcontracting source. Electronika's gross profit as a percentage of net sales was 60%.

Engineering
expenses, applicable only to Torotel Products, increased 5% from $92,000 to $97,000 because of higher payroll costs associated with more hours worked by part-time
personnel and higher travel costs associated with visits to a subcontracting facility in Mexico. Management does not anticipate an increase in the present level of engineering expenses during the next
few quarters.

Selling,
general and administrative (SG&A) expenses increased 18%. The SG&A expenses of Torotel, Inc. increased 93% from $71,000 to $137,000 because of higher compensation costs
of $41,000 associated with Torotel's chairman and CEO (whose earned compensation was $13,000 in last year's period), a $15,000 increase in professional fees, a $5,000 increase in travel costs, a
$3,000 increase associated with the annual shareholders' meeting, and a $2,000 increase associated with license registration fees with the Office of Defense Trade Controls pursuant to the Arms Export
Control Act and the International Traffic in Arms Regulations. The SG&A expenses of Torotel Products decreased 2% from $342,000 to $334,000. because of a $5,000 decrease in fast-pay
discounts taken by major customers and a $3,000 decrease in utilities costs. The SG&A expenses of Electronika were $16,000. Management does anticipate an increase in the present level of SG&A expenses
during the next few quarters as a result of expected higher health insurance costs.

Amortization
costs, entirely attributable to Electronika, were $166,000 (see Note 9 of Notes to Consolidated Financial Statements).

Interest
expense increased nearly 64%. The interest expense of Torotel, Inc. increased 343% from $7,000 to $31,000 because of the higher debt resulting from the equity investment
in Apex. The interest expense of Torotel Products decreased 44% from $18,000 to $10,000 because of lower debt balances

12

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and a lower annual interest rate on the mortgage payable to United Trust Bank (formerly Vista Bank, N.A.).

Interest
income decreased 55% from $11,000 to $5,000 due to a lower principal balance on the note receivable from SIGMA.

For
the reasons discussed above, the consolidated pretax earnings decreased from $336,000 to $261,000. The pretax loss of Torotel, Inc. increased from $67,000 to $162,000. The
pretax earnings of Torotel Products decreased from $403,000 to $350,000. The pretax earnings of Electronika were $73,000.

THREE MONTHS ENDED OCTOBER 31, 2002 VERSUS THREE MONTHS ENDED OCTOBER 31, 2001

Net sales increased 27%. The net sales of Torotel Products increased 3% from $1,017,000 to $1,046,000. This increase was attributable to higher sales of the
potted coil assembly for the Hellfire II missile system. The net sales of Electronika were $242,000.

Gross
profit as a percentage of net sales decreased 3%. The gross profit percentage of Torotel Products decreased nearly 8% because of higher labor costs associated with the development
of a new subcontracting source and higher overhead burden costs associated with a decrease in the level of work in process inventories. Electronika's gross profit as a percentage of net sales was 60%.

Engineering
expenses, applicable only to Torotel Products, remained unchanged at $49,000. Management does not anticipate an increase in the present level of engineering expenses during
the next few quarters.

Selling,
general and administrative (SG&A) expenses increased 18%. The SG&A expenses of Torotel, Inc. increased 90% from $41,000 to $78,000 because of higher compensation costs of
$20,000 associated with Torotel's chairman and CEO (whose earned compensation was $7,000 in last year's period), a $5,000 increase in travel costs, a $4,000 increase in professional fees, a $3,000
increase associated with the annual shareholders' meeting, a $3,000 increase in investor relations costs, and a $2,000 increase associated with license registration fees with the Office of Defense
Trade Controls pursuant to the Arms Export Control Act and the International Traffic in Arms Regulations. The SG&A expenses of Torotel Products decreased 4% from $170,000 to $163,000 because of lower
accruals for incentive compensation awards. The SG&A expenses of Electronika were $8,000. Management does anticipate an increase in the present level of SG&A expenses during the next few quarters as a
result of expected higher health insurance costs.

Amortization
costs, entirely attributable to Electronika, were $83,000 (see Note 9 of Notes to Consolidated Financial Statements).

Interest
expense increased 67%. The interest expense of Torotel, Inc. increased 400% from $3,000 to $15,000 because of the higher debt resulting from the equity investment in
Apex. The interest expense of Torotel Products decreased 44% from $9,000 to $5,000 because of lower debt balances and a lower annual interest rate on the mortgage payable to United Trust Bank
(formerly Vista Bank, N.A.).

Interest
income decreased 60% from $5,000 to $2,000 due to a lower principal balance on the note receivable from SIGMA.

For
the reasons discussed above, the consolidated pretax earnings decreased from $182,000 to $130,000. The pretax loss of Torotel, Inc. increased from $39,000 to $91,000. The
pretax earnings of Torotel Products decreased from $221,000 to $166,000. The pretax earnings of Electronika were $55,000.

13

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LIQUIDITY AND CAPITAL RESOURCES

Torotel relies on funds generated internally to meet its normal operating requirements and to service bank indebtedness. Management continues to evaluate ways of
improving Torotel's liquidity position and funding future investments.

During
the six months ended October 31, 2002, Torotel's operations provided $356,000 in cash flow because of higher earnings before depreciation and amortization. Cash flow has
been adversely impacted by slower payment practices of major customers.

Investing
activities used $15,000 in cash flow because of the acquisitions costs associated with Electronika and Apex (see Notes 10 and 12 of Notes to Consolidated Financial Statements).
These cash outlays were offset partially by the proceeds from the note receivable from SIGMA. Torotel had capital expenditures of $6,000 during the six months ended October 31, 2002, and has
lowered its capital budget to approximately $20,000 for the balance of fiscal 2003.

Financing
activities used $75,000 in cash flow because of decreases in long-term debt.

Management
believes that inflation will have only a minimal effect on future operations since such effects will be offset by sales price increases which are not expected to have a
significant effect upon demand.

OTHER

Except for historical information contained herein, certain of the matters discussed above are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and are subject to the safe harbor created by that Act. These statements are based on assumptions about a number of important factors and involve risks and
uncertainties that could cause actual results to be different from what is stated here. These risk factors are: impairment of intangible assets, decreased demand for products, delays in developing new
products, expected orders that do not materialize, loss of key customers, the impact of competition and price erosion as well as supply and manufacturing constraints, and other risks and
uncertainties.

Item 3.    Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer (collectively, the "Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures for the Company. Such officers have concluded (based upon their evaluation of these controls and procedures as of a date within 90 days of the filing of this
report) that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in this report is accumulated and communicated to the
Company's management, including its principal executive officers as appropriate, to allow timely decisions regarding required disclosure. The Certifying Officers also have indicated that there were no
significant changes in the Company's internal controls or other factors that could significantly affect such controls subsequent to the date of their evaluation, and there were no corrective actions
with regard to significant deficiencies and material weaknesses.

14

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PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

The remaining liabilities related to the discontinued operations of ECH include trade accounts payable of $391,000 (see Note 11 of Notes to Consolidated
Financial Statements). Several claims have been filed by vendors for collection of amounts due, and more could be filed. Since ECH's remaining assets have been assigned as collateral for the remaining
bank debt, ECH has no other source of income to satisfy its trade debt obligations. This trade debt remains the sole responsibility of ECH. Neither Torotel, Inc. or Torotel
Products, Inc. has assumed these obligations. While some of the claims by ECH vendors have resulted in judgments against ECH, neither Torotel, Inc. or Torotel Products, Inc.
intends to provide any funds to satisfy the judgments nor are they obligated to do so.

Item 4.    Submission of Matters to a Vote of Security Holders

The annual meeting of stockholders was held in Grandview, Missouri, on Monday, September 16, 2002, to elect a Board of Directors. At the meeting, there
were 4,712,416 shares voting, with nominees needing 2,356,209 shares to be elected. Stockholders elected the following individuals to a one-year term on the Board of Directors, with the
number of shares voting "FOR" each nominee indicated.

|Dale H. Sizemore, Jr. |  | 4,692,939
|--------------------- |  | ---------
|Richard A. Sizemore   |  | 4,692,939
|H. James Serrone      |  | 4,693,569

Item 6.    Exhibits and Reports on Form 8-K



| | Exhibit 99.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| | ------------ |  | ----------------------------------------------------------------------------------------------------------------------
| | Exhibit 99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



15

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|Torotel, Inc.
(Registrant) |  |     |                                                                                          
|-------------------------- |  | --- | -----------------------------------------------------------------------------------------
|Date: December 12, 2002    |  | By: | /s/H. JAMES SERRONEH. James Serrone
Vice President of Finance and
Chief Financial Officer

16

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CERTIFICATION

I,
Dale H. Sizemore, Jr., certify that:

1.    I
have reviewed this quarterly report on Form 10-QSB of Torotel, Inc.

2.    Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

Date:
December 12, 2002

/s/
Dale H. Sizemore, Jr.

Dale
H. Sizemore, Jr.
Chief Executive Officer

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CERTIFICATION

I,
H. James Serrone, certify that:

1.    I
have reviewed this quarterly report on Form 10-QSB of Torotel, Inc.

2.    Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

Date:
December 12, 2002

/s/
H. James Serrone

H.
James Serrone
Chief Financial Officer

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